Flexcoin said it solved "nearly all" of Bitcoin's problems, then it lost $600,000.

Flexcoin, which proclaimed itself to be the "world's first bitcoin bank" and the solver of "nearly every problem that exists with the Bitcoin currency today," says it has shut down after a robbery. An attacker made off with 896 bitcoins, the equivalent of about $620,000 at today's exchange rates.

A statement on Flexcoin's website read as follows:

On March 2nd 2014 Flexcoin was attacked and robbed of all coins in the hot wallet. The attacker made off with 896 BTC, dividing them into these two addresses:

1NDkevapt4SWYFEmquCDBSf7DLMTNVggdu

1QFcC5JitGwpFKqRDd9QNH3eGN56dCNgy6

As Flexcoin does not have the resources, assets, or otherwise to come back from this loss, we are closing our doors immediately.

The "hot wallet" is what exchanges use to pay out withdrawals instantly. Bitcoins deposited by users are put into "cold storage." Flexcoin said it will help these users get their coins back. "Users who put their coins into cold storage will be contacted by Flexcoin and asked to verify their identity," the bank said. "Once identified, cold storage coins will be transferred out free of charge. Cold storage coins were held offline and not within reach of the attacker."

Flexcoin said it "will attempt to work with law enforcement to trace the source of the hack."

An FAQ on Flexcoin's site modestly says that "Flexcoin solves nearly every problem that exists with the Bitcoin currency today." One of those claims is that "Flexcoin solves the bitcoin security problem."

In a sense, Flexcoin can say that it's right if it's able to get bitcoins out of cold storage and back to their owners. "Flexcoin offers cold storage, where users can specify what they want sent offline," the FAQ said. "It raises the security level dramatically as it’s difficult to have a security issue with a server that is not plugged in."

The company made money on transfer fees. To entice users, Flexcoin offered monthly bitcoin payments to any account holder with a positive balance at the end of each month. However, the company did offer one stark warning, in bold text:

Legal Notice: We are not a true bank that accepts USD or any national currency, only bitcoins which by their nature are not regulated, we’re not FDIC insured or regulated by any government entity.

Someone please tell us again how foolproof/secure the bitcoin system is and how impossible it is for them to be stolen.

It's quite difficult to steal them, if you hold them yourselves, securely. It's empirically rather easy to steal them if you trust some (uninsured) third party with them, who creates a very tempting target for attackers. There's the whole "Why do you rob banks?" "That's where the money is!" thing going on with "convenient" web wallets & such - they're attacked because they're very profitable to attack. And, given the amount pulled from most of them, it's well worth burning 0-days to succeed.

Bitcoin is like gold/silver - if you don't have it in your possession (sole owner of the private key), it's not really yours.